Unpaid child support hits $2.6bn

Law changes on the way after Inland Revenue's 'inflexible' penalty regime is criticised as counterproductive.

More than 5700 parents owe between $100,000 and $500,000 in child support. Photo / Getty Images

At least 10 New Zealand fathers owe $1.3 million or more each in unpaid child support as the total national debt spirals into the billions with interest and penalties.

Secrecy provisions in tax laws mean the Inland Revenue Department would not release the exact amounts of the largest child support debts. But it did confirm that the top 10 owe at least $1.3 million.

The figures released under the Official Information Act are fodder for critics who believe that the IRD's penalty and interest rates for late payments create too much of a burden and discourage payment.

The total debt owed was $1.5 billion in 2009, of which $1 billion was interest and penalty payments.

That figure grew to $2.6 billion by last year - of which $1.7 billion was penalties - and is projected to reach $7 billion by 2018.

The IRD estimates that 99 per cent of penalties cannot be collected and an Auditor-General's report stated that compounding penalties discouraged parents who were confused by the system, rather than being an incentive to pay on time.

Auditor-General Lyn Provost described the penalty regime as inflexible and obstructive. "In my view, Inland Revenue's debt strategy has not adequately focused on preventing debt, nor has it addressed the adverse effect the penalty regime is having on levels of debt."

One father living in Australia, Paul Anthony Jenkins, killed himself in May after being aggressively chased for child support which with penalties ballooned out to $53,000.

Figures released to the Herald show 15,590 fathers living in Australia owe $529 million, which is 20 per cent of the current debt total.

Other figures show that 403 fathers owe more than $500,000 for a total of $290 million - which means that 0.3 per cent of parents make up 11.2 per cent of the $2.6 billion total. More than 5700 parents owe between $100,000 and $500,000 for a total of $1.2 billion, or 45 per cent of the total.

Change is on the way with the Child Support Amendment Bill to have a second reading before Parliament this year.

However, the change to the child support formula has been pushed back to April 2014 and changes to the penalty system until April 2015.

The major change is that "shared care" will be recognised at 28 per cent of nights - two nights a week - rather than 40 per cent. The income of both parents will also be taken into account, which the Government acknowledges will cut payments for some working mothers.

Parents who miss a payment will be granted a week's amnesty before the 10 per cent penalty applies and the incremental monthly penalty after a year of missing payments will be halved to 1 per cent.

The law change will also make it easier for penalty debt to be written off by the IRD, for example if the parent enters into an instalment arrangement or is in serious hardship.

High flying support dodgers owe at least $8m

More than 800 Kiwi dads earning more than $100,000 a year owe millions in child support.

Figures released under the Official Information Act show the high-flyers who declared their hefty pay owed $8 million: $10,000 each on average.

But the true situation is likely to be worse, with many high-income fathers able to minimise their taxable income through self-employment or family trusts.

Changes in the Child Support Amendment Bill seek to make it harder to shelter income in a new definition of "adjusted taxable income - which includes: